What happened to the Deep Discount Broker?

Deep discount brokers were exactly what they sound like: "no frills" access to trading and investing.

Years ago, investment brokers acted as information warehouses. Commissions and fees paid for its collection and distribution. Firms with better information, customer service, websites, etc. could charge higher fees.

As the internet increased access to investing information, a new type of broker appeared; one with an extremely low level of commissions and fees (pennies on the dollar). Hence the term "deep discount".

When these brokers first opened up shop, it was easy to see the "no frills" approach verses other brokers...even discount brokers like E*Trade and TD Ameritrade.

In exchange for their low commissions and fees, service was spotting, transaction times were slow, and customer service was nonexistent. The saying "you get what you pay for" was in full effect.

So What happened to the Deep Discount Brokers?

At that time, access to the market was considered a must have. Brokers could no longer differentiate themselves on access to the markets or data alone.

Basically, trading and investing "services" became a commodity, meaning that there was very little difference between the service offered by firm A and firm B. And what happens when you have a commodity product? You compete on price!

So discount brokers began to lower their commissions and fees. They still had an advantage because of their research, customer service, and non-trading related benefits (i.e. savings and retirement accounts), and now these services could be access at a much lower cost.

Over time, discount brokers realized they couldn't compete on price forever, so they began to acquire deep discount brokers.

At the same time, new technology was changing the financial services industry, making it easier to offer advisory services typically reserved for wealthy clients and/or full service providers.

What do I do now?

As always, the answer is: It depends! Today, the differences in information or commissions/fees between deep discount, discount and full service brokers are almost non-existent.

But just because fees are similar, or investing data and information is more abundant, doesn't mean it's any easier to trade. In fact, more information just makes it harder to find "correct" information, making profitable trading more difficult!

Instead, service level is the next battleground. Do you want full control (trading platform) or do you you want to have things automated (advisory services)?

If you want things automated, do you want a human being (financial advisor from a retail broker) to manage your money or a computer algorithm (robo-advisor from a fintech firm).

Safe Investing Tip:
Pick a broker that's easy for you to use (saves you time), and has low fees (saves you money). You can find almost all the data/information you need for free or just by having account!